About to go under contract. Appreciate any analysis/advice

Hello all. I’m currently serving in the Air Force and after 11 years I’ve decided to separate in order to settle down and raise the family in one place. Tough decision to leave a secure decent paying job with great benefits/pension but there you have it.

I have found most topics/niches have one or two stand-out web resources. This site is clearly that for MHPs. What an incredible resource.

I bought a couple of four-plexes a couple years ago near my wife’s home-town right before the market rebounded there. Good timing, the places have been great, prices have jumped, rents are up 25% since I purchased, and I still get swarmed with applicants when I have a vacancy. My only regret is the seller was selling another 6 quads up the block that I was too afraid to pursue. Been looking to add to my portfolio for over a year now but nothing makes sense at current prices so I’ve been thinking outside the box.

First was thinking campground/RV angle. Found a very promising opportunity near my properties. Great way to raise a family but the rate of return is a little slim for the sizeable investment required. And it’s running a business that ties you down pretty good. Winters off does sound amazing on the other hand. Owners won’t budge on price but in all honestly it is priced well within the standard range based on gross and the location, house etc.

I recently came across a MHP in my wife’s home town that looks very interesting. I have devoured all the information I can get my hands on for the last three weeks. It has been an obsession even though this is definitely out of my comfort zone. My properties are town-home style in a middle class area of a college town. I was raised in NYC and admittedly carry the bias against MHPs that many from certain parts of the country have. But I’m also a contrarian investor who has done well betting against the herd so when I showed my doctor friend the MHP and he turned up his nose at it I had an “AHA!” moment. That’s the reason you can still get a 10 cap on a MHP which should be enough, especially if I self manage it a long with my other properties, to replace my income and free me up to pursue REI full time. Got the green light after a letter of intent and I’m about to put in a formal offer. Bought the 30 day due diligence book but would like any opinions/advice from the outstanding group of investors on here…

The property:

Location: Right near downtown of a small town (+/- 8000 pop) in the metro area (albeit outskirts) of a pop +/- 90K fast growing college town. Pretty expensive average home price. About 175K for a starter 3/2. Fairly healthy demand for affordable rentals it seems. County seat, lower than average unemployment though no major employers besides the hospital, government, tourism. About a third of the pop commutes to the college town. Nice place, low crime, beautiful area. Wife’s family lives there, in fact, she had family who lived in the park years ago so in a small town like this unlikely to be too many surprises.

PP = $1,100,000 (plan to negotiate lower after DD is done)

Older park, +/- 55 lots renting @ $250. Fully occupied, no park owned homes. Definitely rough around the edges, mix of OK homes and crappy ones. A fair number of homes do show pride of ownership though and I would feel perfectly safe walking around at night and in fact did. City water/sewer though water is not sub-metered. Tenants pay electric. 25 little motel style apartments renting @ 375 where owner pays all utilities. This element complicates the deal and probably adds more headache than most would care for but I digress.

Owner is showing between 225-240K gross a year on the place last few years. His P&L seems pretty reasonable as he is only showing a NOI of about 100K for an expense ratio higher than average. He includes about 25K for an onsite manager/maintenance man as well as reasonable amounts for repairs. Water runs about 40K a year, all other expense items seem to be relatively reasonable. The apartments obviously run up the expenses, especially at all utilities included, but even expensing them at 65% they generate an OK return. Stepping back from line-by-line expenses and looking at the bigger picture, if he is fact “cooking the books” his expense ratio would need to be absolutely abysmal.

Local bank that is being aggressive right now knows the property and seems very interested in financing. 25% down, +/- 5%, 5 year fixed amortized at 20 years is what they’re talking. Like those terms but still plan to shop it. Would like to land 80% LTV, not sure how likely that is.

Upside would be to sub-meter water. Seems like 250 lot rent is about standard around town though I need to nail down who is paying utilities in competing parks. One of the nicer parks does charge 275. Owner hasn’t raised lot rent in a number of years but family says lot rents have been pretty steady around town. Seems like they are close to market so I would probably lower rent to 225 or so and pass the average 45 dollar water bill onto the tenants for a net 20 dollar gain per lot. Since the tenants will be conserving more they probably will only see a small rent raise. Based on housing prices in the area I have a feeling lot rents across town are due a 5/10% increase but am unsure at this point.

I could also add a couple homes though SAFE act requirements have made this a headache.

Primary concern is dealing with MHP/low income tenants. Again, not something I ever saw myself doing. It’s a small town, sort of stagnant population. Being from NYC I have a nagging feeling that a younger generation will prefer apartments to the stigma of a park. I know I do. But the numbers look pretty promising. And the ability to be my own boss, work for myself with the time to explore other opportunities, and settle down in one place is very exciting. I plan on going step by step through the due diligence manual process so who knows what will turn up. I could go through the DD process on a quad with my eyes closed and feel very confident. There are just so many moving parts with a park. It’s also a type of lifestyle entirely foreign to me as a city guy and the thought of dealing with this type of property/tenant definitely creates a fair amount of anxiety. Of course, I felt that anxiety before I bought the quads too. I apologize for the length of the post but I would appreciate any advice or thoughts you guys have on the deal. Thanks.

55 x $250 x 12 x .7 x 10 = $1,155,000, which is the rough value of the lots at a 10% cap rate, not including the 25 apartments at $375 all bills paid. I would definitely tie it up. If it does not work at around $1,100,000, then its not going to work at $1,000,000 either. If you could sub-divide and sell off the apartments, that would be the real coup on this deal. I’d tie it up ASAP personally.

As a SC Real Estate Broker I would put a contract on it immediately.A Letter Of Intent is not binding.  The MHP could walk away to another investor who puts a contract on it.Please make sure that you either have a Real Estate Attorney or Real Estate Agent draw up a contract for you.  Please also make sure that the contract has lots of ways that you can get out of it if you find something not to your liking.  Include at least the following in the contract:-  Financing:  90 Consecutive Days To Get Financing (Actual Financing Not Pre-Approval)-  Due Diligence:  60 Consecutive Days Due Diligence With A Clause To Get You Out Of The Contract With Your Earnest Money Returned If You Find Anything That You Do Not Like-  Zoning:  A Letter From The Zoning Department That The MHP Is Zoned A MHPWe wish you the very best!

Frank, the thought of subdividing occured to me as well and the physical layout of the property lends itself to it at first glance. Will look into it further under due diligence. I’m left to wonder why their expense ratio is so high. You multiply by .7 allowing 30% for expenses. Seems to me he is closer to 60%. Will share more details on the deal once under contract. Through an e-mail I know the owner has two other parks and a consultng business so he appears to be a savvy investor. I’m thinking there’s a reason more upside hasn’t been taken advantage of or priced in.
Kristin, the contract is under review and should go out tomorrow. They wanted a LOI to hash out price and general terms so there is really no reason they shouldn’t accept the offer now. I used the contract included in the "30 day due diligence " materials offered here with some minor tweaks. Looks ironclad.

Great job in getting the Contract under review to go out tomorrow.  Way to go!Please just make sure that your Contract gives you several ways to get out and get your Earnest Money back if you decide not to go forward.We wish you the very best!

@frankrolfe I’m currently in the same boat, putting a “rough” 106 pad park under contract in AL. I was listening to your podcast and would really appreciate a copy of your Owner Financing Contract if you would be so kind as to share that with me.
my email is Zeal.MHC@gmail.com
Thank you and I cant thank you enough for all your valuable insight and education!!!